Asset-Price Collapse and Market Disruption - A model of financial crises -
AbstractWe construct a search-theoretic model � la Lagos and Wright (2005), that has multiple steady-state equilibria, one of which may be interpreted as a state of financial crisis. The key ingredient is the collateral-secured loan in the decentralized matching market, in which the borrowers must put up their own land as collateral. They borrow debt for intertemporal smoothing of the consumption stream and also for factor payment in production. In the crisis state, the land price is low and the debt for factor payment, i.e., liquidity, dries up. Facing a liquidity shortage, all sellers choose not to participate in the matching market and the market is shut down due to the search externality. This market disruption lowers the aggregate productivity, while the low productivity justifies the low asset price in turn. We may be able to derive a policy implication that collective debt reduction by government intervention may solve the coordination failure and bring the economy out of the crisis equilibrium.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09045.
Length: 34 pages
Date of creation: Sep 2009
Date of revision:
Contact details of provider:
Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901
Web page: http://www.rieti.go.jp/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-11 (All new papers)
- NEP-DGE-2009-09-11 (Dynamic General Equilibrium)
- NEP-MAC-2009-09-11 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ricardo Lagos & Randall Wright, 2004.
"A unified framework for monetary theory and policy analysis,"
346, Federal Reserve Bank of Minneapolis.
- Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
- Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Guillaume Rocheteau, 2004.
"Inflation, output, and welfare,"
0407, Federal Reserve Bank of Cleveland.
- Tomoyuki Nakajima & Masaru Inaba & Keiichiro Kobayashi, 2007.
"Collateral constraint and news-driven cycles,"
2007 Meeting Papers
320, Society for Economic Dynamics.
- Lee E. Ohanian, 2001.
"Why Did Productivity Fall So Much during the Great Depression?,"
American Economic Review,
American Economic Association, vol. 91(2), pages 34-38, May.
- Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Lee E. Ohanian, 2001. "Why did productivity fall so much during the Great Depression?," Staff Report 285, Federal Reserve Bank of Minneapolis.
- Makoto Watanabe & Leo Ferraris, 2007.
"Collateral Secured Loans in a Monetary Economy,"
2007 Meeting Papers
121, Society for Economic Dynamics.
- Keiichiro Kobayashi & Kengo Nutahara, 2007.
"Collateralized capital and news-driven cycles,"
AccessEcon, vol. 5(18), pages 1-9.
- Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
- Keiichiro Kobayashi, 2004.
"Payment Uncertainty, the division of labor, and productivity declines in great depressions,"
04037, Research Institute of Economy, Trade and Industry (RIETI).
- Keiichiro Kobayashi, 2006. "Payment uncertainty, the division of labor, and productivity declines in great depressions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 715-741, October.
- Timothy J. Kehoe & Edward C. Prescott (), .
"Great depressions of the twentieth century,"
Federal Reserve Bank of Minneapolis, number 2007gdott.
- Urban Jermann & Vincenzo Quadrini, 2007.
"Financial Innovations and Macroeconomic Volatility,"
2007 Meeting Papers
50, Society for Economic Dynamics.
- Urban Jermann & Vincenzo Quadrini, 2006. "Financial innovations and macroeconomic volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Urban Jermann & Vincenzo Quadrini, 2006. "Financial Innovations and Macroeconomic Volatility," NBER Working Papers 12308, National Bureau of Economic Research, Inc.
- Jermann, Urban & Quadrini, Vincenzo, 2006. "Financial Innovations and Macroeconomic Volatility," CEPR Discussion Papers 5727, C.E.P.R. Discussion Papers.
- Enrique G. Mendoza, 2006. "Endogenous Sudden Stops in a Business Cycle Model with Collateral Constraints:A Fisherian Deflation of Tobin's Q," NBER Working Papers 12564, National Bureau of Economic Research, Inc.
- Timothy Kehoe & Edward Prescott, 2002.
"Data Appendix to Great Depressions of the Twentieth Century,"
kehoe02, Review of Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko).
If references are entirely missing, you can add them using this form.